Business and legal observers submit their objections to recent changes
By: David Bland
Words matter, and the deliberate deletion of ‘legitimate business activity’ from the FTC’s draft Mission Statement is material and meaningful. This move is likely to trigger another hostile response, creating an unnecessary distraction of the Agency’s own making.
— John Villafranco, Partner, Kelley Drye & Warren LLP
The U.S. Chamber of Commerce, the nation’s most powerful corporate lobbying group and a long-time adversary of the Federal Trade Commission (FTC), sent three letters to Commission Chairwoman Lina Khan on Nov. 19, objecting to recent actions by the Commission that the Chamber considers to be abuses of power.
In an incendiary accompanying statement, U.S. Chamber President and CEO Suzanne P. Clark said: “The FTC is waging a war against American businesses, so the U.S. Chamber is fighting back to protect free enterprise, American competitiveness, and economic growth.”
Clark said she believes that Chairwoman Khan is leading the FTC into a “radical departure from its core mission” and threatened the Commission with litigation and Congressional involvement to push back against what she considers a rogue agency in the midst of regulatory overreach.
The Chamber’s letters address three topics reflecting some of the actions and decisions made by the Commission since the 2020 election cycle—“zombie” votes, undue political influence, and the FTC’s use of the Penalty Offense Authority.
Chopra’s Zombie Votes
With the confirmation of Lina Khan as Chairwoman in June 2021, the ideological balance of the FTC favored the progressives, with Commissioners Rebecca Kelly Slaughter and Rohit Chopra supporting Khan’s agenda. However, The FTC’s political balance became temporarily deadlocked at 2-2 upon Chopra’s Senate confirmation as Director of the Consumer Finance Protection Bureau (CFPB) in October 2021, following his nomination to the Bureau by President Biden at the beginning of the year.
Due to Chairwoman Khan’s interpretation of an arcane voting rule, all votes made by fellow Democrat Chopra prior to his departure from the FTC on Oct. 8 could be counted, representing a tie-breaking vote, if at least two other Commissioners voted the same way—effectively preserving progressive party line success until the end of 2021.
In the Chamber of Commerce’s letter addressing these so-called “zombie” votes, the inclusion of Chopra’s votes are deemed “not only bad government, but patently unlawful.” The letter takes Chairwoman Khan to task for concealing this vote practice from the public and cites Section 15 of the FTC Act as explicitly requiring Commissioners to be in office before taking any action with a Commission vote.
The letter goes on to detail a 2019 Supreme Court decision regarding the matter of a 9th Circuit judge who died after drafting a majority opinion, but before the full vote was taken. In this Supreme Court Matter of Yovino v. Rizo, the Court ruled that the judge’s vote could not be counted.
The Chamber’s letter on “zombie” voting concludes by questioning why the Chairwoman would not simply defer on the matters at hand until a 5th Commissioner is confirmed and emphasizes the organization’s willingness to challenge the voting practice in court.
Undue Political Influence
The Chamber of Commerce’s second letter was sent to 42 federal agency heads and officials, including Lina Khan of the FTC, Rohit Chopra of the CFPB, and heads of the Securities and Exchange Commission (SEC), Federal Election Commission (FEC), and Federal Communications Commission (FCC).
The letter expresses the Chamber’s view that White House personnel have engaged in improper contact with some independent federal agencies that occurred in regards to a July executive order called Promoting Competition in the American Economy. The order established a White House Competition Council and charges the Council chair to invite the heads of independent agencies to participate in the Council and encourages them to comply with the executive order, “with particular attention given to the Federal Trade Commission.”
While conceding that independent agencies are ultimately a part of the Executive Branch, the Chamber letter urges the officials and staff at each of the agencies in receipt of the letter to “pay special heed to ensuring that communications with the White House regarding policy and regulatory matters appropriately respect the agency’s statutory obligation to exercise independent expert judgment in discharging its statutory responsibilities.”
Penalty Offense Authority
The final letter issued by the Chamber was addressed to FTC Chairwoman Lina Khan in response to the Commission’s recent action putting over 1,800 businesses, including hundreds of direct sellers, on notice regarding endorsements and money-making opportunities. In it, the Chamber refers specifically to former Commissioner Rohit Chopra and now-Director of Bureau of Consumer Protection Samuel Levine’s 2020 paper, titled The Case for Resurrecting the Penalty Offense Authority, in which the authors call for the FTC to utilize their Penalty Offense Authority (POA) to put entire industries on notice for unlawful practices.
The letter advises Chairwoman Khan that “the approach recommended by former Commissioner Chopra of using blanket POA warnings to industry could unfairly subject businesses to crippling penalties or encourage costly settlements for allegations based on precedent that is either outdated or irrelevant.”
The Chamber urges the FTC to avoid legal challenges by showing restraint in its use of the POA and lists the following three suggestions to the Commission:
- Penalty Offense Authority Should Only Be Used for Clear and Knowable Violations.
- The Commission Should Not Subject Companies to Potentially Outdated Determinations to Directly Enforce Civil Penalties.
- Further POAs Should Be Addressed to Actual Suspected Violators and Not Implicate Legitimate Businesses.
The Chamber’s letter makes clear that it has concerns that companies whose conduct is only “tenuously” related to previous and possibly outdated FTC determinations may be hit with penalties. Furthermore, the letter maintains that by merely putting these 1,800 companies on notice, the FTC “smears and damages the reputation of the many legitimate companies doing business.”
Proposed Change to FTC’s Mission Statement Draws Attention
As is required every four years of government agencies, the FTC on Nov. 11 submitted an update to its strategic plan for the next five years and invited public review and comment. One item in particular within the FTC’s Draft Strategic Plan for 2022-2026 that is drawing attention from business and legal circles is a change to its Mission Statement.
Specifically, the phrase “without unduly burdening legitimate business activity” has been removed from the Commission’s revised Mission Statement under consideration.
The current Mission Statement reads, “Our Mission: Protecting consumers and competition by preventing anticompetitive, deceptive, and unfair business practices through law enforcement, advocacy, and education without unduly burdening legitimate business activity.”
The new draft Mission Statement for 2022-2026 reads, “The FTC’s Mission: Protecting the public from deceptive and unfair practices and policing unfair competition through law enforcement, advocacy, research, and education.”
Included in the 18 public comments submitted about the proposed changes are statements from the U.S. Chamber of Commerce, the National Taxpayers Union Foundation (NTUF), and the law firm Kelley Drye & Warren LLC.
US Chamber’s Public Comment
The U.S. Chamber’s public comment addresses a laundry list of concerns about the FTC’s proposed strategic plan, including a lack of engagement with the private sector and the conflating of its competition authority with its enforcement of unfair and deceptive acts or practices, among other items.
The Chamber also addresses the deletion of “unduly burdening legitimate business activity” language from the FTC’s Mission Statement and does so in the context of reminding the Commission of the actual costs incurred by businesses during FTC investigations.
According to the Chamber’s public comment, “This omission suggests that the FTC no longer plans to consider the many burdens imposed on legitimate business activity. However, the Commission cannot impose unlimited costs on the private sector without expecting that businesses pass along those costs to consumers in the form of higher prices.”
National Taxpayers Union Foundation Comment
The NTUF was also motivated to submit a public comment to the FTC, in which it states that the Commission’s Mission Statement changes are “alarming within the context of the actions of the Commission’s majority over the past several months.”
The Foundation challenged the Commission on its replacement of “consumers” with “the public” as this change, in their opinion, reflects Chairwoman Khan’s intent to eliminate the consumer welfare standard that has guided the Commission’s enforcement practices for decades.
Comment From Regulatory Legal Experts
The law firm Kelley Drye & Warren LLP submitted a five-page comment to the Commission that focuses entirely on the deletion of the “legitimate business activity” language from its Mission Statement.
The firm’s letter states that the deleted text reflects “foundational principles” that have been included in FTC Statements for decades and that their exclusion “sends a strong message to the public and the marketplace that preserving and encouraging legitimate, competitive business activity is no longer an FTC priority.”
Kelley Drye & Warren’s comment concludes by suggesting that, in light of the FTC’s recent policy announcements, the deletion of the “legitimate business activity” language may suggest that the Commission is pursuing a new direction altogether, “one that places less emphasis on preserving legitimate business activity, and more on pursuing policy goals through aggressive interpretation of FTC authority.”
John Villafranco, an attorney who specializes in FTC cases and a partner at Kelley Drye & Warren LLP, believes the Commission is creating unnecessary conflict moving forward.
“With enemies taking aim and allies taking cover, what is to be gained by eliminating the express commitment to avoid unduly burdensome regulation of legitimate business activity, especially when leadership at the Agency complains about a shortage of resources and a surfeit of illegitimate business practices? Words matter, and the deliberate deletion of ‘legitimate business activity’ from the FTC’s draft Mission Statement is material and meaningful. This move is likely to trigger another hostile response, creating an unnecessary distraction of the Agency’s own making.”
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